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Mr. Lax explained that even though a 68.47-percent interest
wielded voting control over Belle Fourche, a hypothetical buyer
would not pay a premium for the interest because of the
interrelatedness of the True companies. According to Mr. Lax,
Belle Fourche is part of a network of interdependent, family-
owned companies engaged in all aspects of the oil and gas
business. He emphasized that these companies shared management
and administrative resources and relied on each other for
success, so that it would be difficult for Belle Fourche to stand
alone profitably. He observed that as a pipeline company with no
dedicated reserves, Belle Fourche depended on True Oil, True
Drilling, and especially on Eighty-Eight Oil, as the shipper, to
ensure continued operation of its pipeline. Mr. Lax concluded
that a hypothetical buyer would not assign additional value to
voting control over Belle Fourche because the buyer could not
obtain similar control over the related True companies.
The valuation analysis of the final Lax report concluded:
Using the 12 months ended [May 31, 1994] EBDIT of
$9,000,000 and multiples of 2, 2.5 and 3.0 less the
interest bearing debt of $16,000,000; EBIT of
$4,057,000 and multiples of 4.5, 5.0 and 5.5 less the
debt of $16,000,000 and EBT of $2,975,000 and multiples
of 2, 2.5, 3, we concluded an equity value for the
68.47 percent [interest] of $4,100,000 as of June 3,
1994.
The information above represents all the financial data that
Mr. Lax provided to support his valuation conclusion.
As described infra, the final Lax report stated that no
marketability discount would apply to Dave True’s 68.47-percent
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